Can I contract that any new tenant provides their own reference?

by Readers Question

10:10 AM, 14th November 2019
About 4 weeks ago

Can I contract that any new tenant provides their own reference?

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Can I contract that any new tenant provides their own reference?

Looking into the mine field of the consequences of the new tenant fees act. I have several HMO’s with 4 or 5 tenants all on a single joint contract (ie. a shared house scenario).

Generally about once a year, at a point the contract has become periodic, a tenant will want to move out and the others want to stay. At this point I say that’s fine if they want to find another sharer and require the incoming tenant to cover the charge of a reference check. I then draw up a new contract, we all sign, I re-protect the deposit and I make no further charge.

As I understand it, I can no longer charge the incoming tenant for the reference, but could I make it a condition of the contract that when this situation arises, that any new tenant the others want to have join them must provide a current reference from a recognised agent such as the RLA.

Also, is registering the new tenant line up with the deposit protection scheme a reasonable cost as well as drawing up a new contract and liasing with the new tenant.

I’m guessing it’s a big no to all these questions and the only answer is to put the rent up. Thought I’d ask anyway.

Many thanks for all and any replies.

Jamie

Editors Note: Official government guidance for tenant fees ban released

What fees can I ask a tenant to pay?

You cannot require a tenant (or anyone acting on their behalf or guaranteeing their rent) to make certain payments in connection with a tenancy. You cannot require them to enter a contract with a third party or make a loan in connection with a tenancy.

The only payments you can charge in connection with a tenancy are:

  • The rent
  • A refundable tenancy deposit capped at no more than five weeks’ rent where the annual rent is less than £50,000, or six weeks’ rent where the total annual rent is £50,000 or above
  • A refundable holding deposit (to reserve a property) capped at no more than one week’s rent
  • Payments to change the tenancy when requested by the tenant, capped at £50, or reasonable costs incurred if higher
  • Payments associated with early termination of the tenancy, when requested by the tenant
  • Payments in respect of utilities, communication services, TV licence and council tax; and
  • A default fee for late payment of rent and replacement of a lost key/security device, where required under a tenancy agreement

If the fee you are charging is not on this list, it is a prohibited payment and you should not charge it. A prohibited payment is a payment outlawed under the ban.



Comments

Ian Narbeth

10:37 AM, 18th November 2019
About 3 weeks ago

Reply to the comment left by Queen Victoria at 16/11/2019 - 08:22We are mildly amused by your question but it misses the point.
I am not asking the tenant to trust me to make regular payments. The tenant is not entrusting me to take care of an asset worth several hundred thousand pounds. I cannot "do a runner" and leave the tenant with a £2000 debt that they have little chance of recovering. The law does not give me as a landlord very substantial rights to prevent the tenant exercising his or her contractual rights.
None of my prospective tenants has ever asked but I would point out that I run my business through a company so the accounts are public. The tenant can also talk to other tenants to find out what I am like as a landlord. If that is not sufficient, the tenant is free not to do business with me.

Ian Narbeth

11:06 AM, 18th November 2019
About 3 weeks ago

Reply to the comment left by Jim S at 16/11/2019 - 09:00Jim
Para 6 of Sch 1 of the TFA deals with payments "in consideration of the variation, assignment or novation of a tenancy at the tenant’s request". This would cover the Landlord agreeing that tenants A, B and C can assign to A, B and D.
Para 7 of Sch 1 of the TFA deals with payments "in consideration of the termination of a tenancy at the tenant’s request—
(a) in the case of a fixed term tenancy, before the end of the term, or
(b) in the case of a periodic tenancy, without the tenant giving the period of notice required under the tenancy agreement or by virtue of any rule of law."
Once the tenancy becomes periodic the tenants need to give notice to terminate it. If they do not, the tenancy continues indefinitely. In my example A, B and C may not want to give notice in case the landlord accepts it and asks them to leave. So they may request that the existing tenancy is ended and a new one given to A, B and D. That raises an interesting legal point. Will a court hold that the amount of the payment exceeds the loss suffered by the landlord as a result of the termination of the tenancy? Is it a "loss"? Does it arise "as a result of the termination?" Great questions for a law exam.! However for landlords the issue is does he risk it for £50? If the tenant threatens a complaint to the Council the landlord's upside is that he is hundreds of pounds out of pocket if he has to take professional advice and his downside is a massive fine and the risk to his livelihood.
Landlords are on safer ground either refusing any request or agreeing only to the assignment of the tenancy to A, B and D. As so often with badly thought out legislation there are unintended consequences.

Steve Masters

11:24 AM, 18th November 2019
About 3 weeks ago

One way round this is to take out insurance to absorb the cost of not taking the risk, by putting the rent up.
The unintended consequence of badly thought out legislation.

Steve Masters

11:27 AM, 18th November 2019
About 3 weeks ago

The Tenant Fees Act throws the baby out with the dish water. It penalises the many for the actions of the few!

paul robinson

14:49 PM, 18th November 2019
About 3 weeks ago

Reply to the comment left by Ian Narbeth at 18/11/2019 - 11:06
With a shared rental the £50 would not cover the extra management time for an assignment process to ensure that all tenants and landlord are safe guarded and the process is professionally managed. I know there is also a “reasonable” wording in the legislation, but interesting to see how anything more than £50 is viewed by the powers at be who are overseeing such charges.

I didn’t read the consultation document on the Tenant fee ban, so unsure if it also ignored shared rentals and HMO, just like the consultation on scrapping S21 did. But maybe the reason why the government think that £50, one size fits all cost is fair and suitable for all rental demographics.

Ian Narbeth

14:55 PM, 18th November 2019
About 3 weeks ago

Reply to the comment left by paul robinson at 18/11/2019 - 14:49 Paul I agree. The problem is £50 will be seen as the "norm" by Councils (even in 10 years time when the figure won't have been increased by Parliament). Unfortunately the Act doesn't simply say that the landlord has to repay the difference if the Council/court thinks he has charged too much. The excess is a prohibited payment and the landlord is liable for a fine and/or being put on the rogue landlords' register.

paul robinson

14:59 PM, 18th November 2019
About 3 weeks ago

Reply to the comment left by Ian Narbeth at 18/11/2019 - 14:55
I wonder what happens if you agree the “reasonable” cost in writing with the leaving tenant – does that then omit any risk of future issues from the LA?

Very occasionally I have to agree a bond deduction, but would always agree with the tenant, therefore avoiding the need to use any of the 3rd party bond schemes for arbitration.

Ian Narbeth

15:35 PM, 18th November 2019
About 3 weeks ago

Reply to the comment left by paul robinson at 18/11/2019 - 14:59
Hi Paul
If you agree it in writing you should be OK as you would simply show that agreement to the Council. The Council may take a dim view of a tenant who agrees £50 but turns round a week later and says a reasonable fee was £30.

Queen Victoria

19:08 PM, 18th November 2019
About 3 weeks ago

Reply to the comment left by Ian Narbeth at 18/11/2019 - 10:37
I am suprised that you were amused by my question because it was a serious point. As landlords we are relied on to run our businesses properly including committing to all the expenditure that goes with providing the service that the tenant is paying for. There are many examples of landlords failing in this regard so I don't think it is such a one sided committment as you seem to suggest. But my point is that if disclosure is sought from one side I do not see why a similar level of detail should not be provided on request to the other. I thought your request for bank statements to be unnecessarily intrusive which is what prompted my question.

Jim S

20:47 PM, 18th November 2019
About 3 weeks ago

Reply to the comment left by Queen Victoria at 18/11/2019 - 19:08
Hello,
Page 40 of the Governments tenant fees ban guide states that requesting bank statements from a prospective tenant is part of the due diligence that they expect from a landlord and they actually use the words that this is a reasonable request for information.

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